The resurgence of COVID-19 followed by different levels of fresh restrictions in various parts of the country is certain to hit economic activity this year, ratings agency Moody's and brokerage firm Nomura have predicted. Both have cut their earlier GDP forecasts, but still believe in a double-digit growth in 2021 given the low economic activity last year.

Nomura last week cut India's GDP forecast to 12.6 per cent from 13.5 per cent forecast earlier. In its report, 'India: Standing tall amid second wave', Nomura said that the revision in GDP forecast reflected the impact the second COVID-19 wave could have on the economy. Nomura had said India's GDP growth could fall to 12.2 per cent if COVID-19 cases continue to rise.

“Daily new COVID-19 cases under the second wave have now exceeded the first wave peak, and more states have joined the worst-affected state of Maharashtra in entering quasi lockdown,” the report by economists Sonal Varma and Aurodeep Nandi said. The overall impact of the second wave on the economy could be visible in Q2.

“We expect the second wave to result in weaker sequential momentum in Q2, owing to the lockdowns, but the broader growth upcycle to remain intact due to ongoing vaccinations, the lagged impact of easy financial conditions, front loaded fiscal activism and strong global growth,” the report said. Nomura agreed with the RBI's recent assessment that less stringent lockdowns, an adaptation to the new normal, ongoing vaccinations, stronger global growth and lagged effects of easy financial conditions were likely to support the cyclical growth recovery.

The second wave of COVID-19 infections presents a risk to India’s growth forecast as the reimposition of measures to curb the spread of the virus will hit economic activity, but a double-digit GDP growth is likely in 2021 given the low level of activity last year, Moody’s said on Tuesday.

Moody’s, however, expects that given the focus on ‘micro-containment zones’ to deal with the current wave of infections, as opposed to a nationwide lockdown, the impact on economic activity this year would be less severe than that in 2020. In a commentary, Moody’s said countermeasures to combat the second wave–some of which are due to remain in place at least until the end of April – risk weakening the economic recovery. However, the targeted nature of containment measures and rapid progress on vaccinating the population will mitigate the credit-negative impact.

“GDP is still likely to grow in double digits in 2021 given the low level of activity in 2020,” Moody’s Investors Service said. In February, Moody’s had put India’s growth projection for the current fiscal year at 13.7 per cent as economic activity was beginning to speed up. For the calendar year 2021, Moody’s has projected economic growth rate at 12 per cent.

“The second wave of infections presents a risk to our growth forecast as the reimposition of virus management measures will curb economic activity and could dampen market and consumer sentiment,” Moody’s remarked.

Fibre2Fashion News Desk (SG)

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